EU talks storm ahead to square one

David Davis the Brexit secretary wants the EU to revisit the way Brexit negotiations proceed. And an economics professor from Cardiff University has claimed that the UK would see a £135 billion boost if it chose the hard Brexit option. Do either Mr Davis or the economics professor have a point?

The Davis position

David Davis and his colleagues want to see negotiation between the EU and the UK take on a whole new flavour. The EU has long held the position that there will be no trade negotiations until after the so-called Brexit divorce bill, the future of EU citizens living in the UK and the status of Northern Ireland are all settled. And after that, the EU wants to agree trade deals over goods before it looks at services. Davis and co are trying to put pressure on the EU to relent, to let it all happen in parallel.

The Minford Position

The BBC has reported on the ideas of Professor Minford at Cardiff University. The prof wants the UK to leave the EU with no negotiated agreement and scrap all tariffs on all imports to the UK from anywhere in the world. He says that by doing this, the UK would receive a £135 billion boost, a year. He argues that by doing this, there would be sharp drop in the price of goods for sale in the UK. Running in parallel with the removal of tariffs, the professor wants to see much lighter UK regulation. He also makes a somewhat harder argument to understand. The BBC put it thus: “The EU would then be under pressure to offer Britain a free trade deal, otherwise its producers would be competing in a UK market “flooded with less expensive goods from elsewhere.”

The snag with the Davis plan

The big snag with the Davis plan is that it takes us right back to where we were a year ago, we would have moved precisely nowhere. Of course, if the UK were to agree a financial settlement with the EU without any wider agreement, its negotiating position would be weaker, so you can see why Davis wants to change this.

In many ways, it feels as if the EU and UK Brexit negotiators are talking a quite different language, metaphorically speaking. To the Brexit team, the EU needs UK trade, and needs UK money, and therefore it is just logical for it to enter into negotiations reaching an amicable agreement. But the EU’s negotiators see it quite different. The EU is a club, and there has to be disadvantages of not being a member of that club, otherwise, what is the point in having it.

Neither side have seen their position change, not by a fraction since the Brexit vote.

The snag with the Minford plan

Actually, there are two snags with the Minford plan: one relates to the unilateral argument, the other to regulation.

Unilateral

Frankly, the arguments to support the Minford plan are very similar to the arguments in favour of unilateral nuclear disarmament. A world with no tariffs would be a richer world, therefore the UK needs to set an example, and the rest will follow suit. A world without nuclear weapons would be safer, therefore the UK needs to unilaterally get rid of its weapons in the hope that the rest of the world will follow.

The counter-argument to unilateral nuclear disarmament is obvious, and for similar reasons, so are the arguments against unliterally getting rid of tariffs.

The fear is that if the UK left it borders completely open to foreign goods, the rest of the world would say thank you very much but have no incentive to replicate the move.

It is odd that those who favour unliterally getting rid of trade barriers are often the very people who oppose unilateral nuclear disarmament.

Regulation

But there is a bigger problem and this takes us back to the Davis position, too.

Different counties have different rules, different regulations. In some countries, for example, there are stringent rules on pollution, forcing the cost of production up. Countries without these rules are at an unfair advantage.

And for that reason, the key element of most trade negotiations relates to rules and regulations, ensuring trade partners do not have unfair advantages.

So, trade agreements mean rules, and if you are using trade agreements with lots of countries you have lots of rules, and you may have limited say on what these rules are.

And many people voted Brexit because they didn’t want the UK to have to follow rules over which we have limited control.

And that takes us back to square one.

If the UK was lightly regulated, and its producers could pollute to their hearts content, or mistreat workers however they want to, then at least the problem that unilaterally abolishing tariffs would cede lightly regulated countries an unfair advantage, would be abolished.